According to Fitch, the ratings indicate Diamond\'s rapid credit growth, loan book concentration and Nigeria's difficult operating environment. The ratings also take into account Diamond\'s strong earnings growth, an expanding retail footprint and adequate capital.

In the FY to April 2008, the bank's operating profit improved 113.2% to N16.2bn on the back of strong growth in net interest and non-interest income. The trend of strong earnings growth continued into H108/09 when the bank recorded an 83.1% growth in gross earnings to N49.9bn while post-tax profit for the period increased by 66.5% to N10.5bn.

Strong levels of loan growth (126.2%) and write-offs caused Diamond's non-performing loan (NPL) ratio to improve to 4% at FY08 (FY07: 6.75%). On an absolute basis, Fitch notes that Diamond\'s NPLs increased by a rapid 166% yoy in FY08 after discounting the impact of write-offs. Management indicated that write-offs in FY08 consisted of a combination of legacy loans relating to the acquisition of Lion Bank in 2005 and other NPLs. The agency considers the bank\'s coverage ratio of 91.1% at FYE08 (FY07: 86.1%) to be low since a significant proportion of loans is unseasoned. Fitch anticipates that the recent trend of rapid credit growth could lead to deteriorating asset quality, especially in light of Diamond\'s core focus in the riskier commercial/SME and retail sectors.

The strong levels of credit growth have caused liquidity indicators to tighten. Diamond raised US$500mn of new capital through a Global Depository Receipts Offering in FY08. However, rapid growth in risk-weighted assets in FY08 mostly offset the growth in the capital base. Diamond reported a Tier 1 capital ratio of 20.5% at FY08 (FY07: 18.6%). Fitch considered Diamond\'s levels of Tier 1 capital to be adequate.

Based on our evaluation, Diamond trades of 2009 multiples of 4.9x earnings and 0.7x book value and 2009 dividend yield of 10.4%. We equally estimate the bank's FY09 gross earnings and post-tax profit to be N99.5bn and N19.2bn respectively.